Analyst learned pitfalls of fame in prognostication

Elaine Garzarelli, director of sector analysis at Lehman Brothers, is assured a prominent place in Wall Street history because of her advice to dump all stocks weeks before the 1987 crash.

Garzarelli became a star when the market plummeted the 500 points she said it would. She remains a top-rated analyst in Institutional Investor's annual all-star rankings.

Yet a side effect of well-deserved fame has been greater personal scrutiny than this Ph.D. who loves to spend hours working on computer models and reports ever imagined.

In a recent interview in her home office as she was compiling her latest report, a gigantic television flashing stock symbols and financial programs in the background, Garzarelli chatted about the heat she has taken.

She recently has been criticized for the divergence of opinion at Lehman between her bullish forecast and the bearish expectations of the firm's chief stock strategist, Katherine Hensel.

"My whole career I've often had a different opinion from others at my firm because I never go to meetings and do all my own work," contended Garzarelli, who emphasizes a quantitative approach, while Hensel is more intuitive. "I'm bullish because the market's still 7 percent undervalued, and I'd only sell if bond rates rose another 2 [percentage points] or the Dow Jones industrial average hit 5000."

The Dow should trade between 3600 and 4200 the next four months, she believes, with the strongest sectors being chemicals, metals, paper, drugs, food, soft drinks and alcoholic beverages. Buy on price dips, she counseled.

Garzarelli gives Federal Reserve Chairman Alan Greenspan high marks for "holding the hand of the economy and taking care of us," and she thinks President Clinton isn't given enough credit for cutting the federal budget deficit.

There's lately been negative publicity about Garzarelli's mutual fund, the Smith Barney Shearson Sector Analysis Fund. It was closed and quietly merged into another portfolio because of lackluster performance and eroding assets, after its early success in 1987.

"My good work was not reflected in the fund, for running a fund is much different from advising a fund," she acknowledged, pointing out that she picked sectors and then used the firm's stock picks. "The high fees associated with the fund also made it more difficult to do well."

The greatest example of public scrutiny involved a drunken driving charge -- which she said has been dropped -- in East Hampton, N.Y., late this summer, after an evening in which Garzarelli said she had been drinking champagne with a friend.

The news item was flashed around the country, and reporters launched phone calls around Wall Street to determine whether Garzarelli might have a drinking problem on the scale of the much-publicized former drug problem of economist Larry Kudlow. (She doesn't.) Then a news clipping of the incident was faxed to a number of Lehman clients and other firms by an employee of a competing firm. The headline was doctored to read, "Elaine Garzarelli, Sober Research for Sober Investors."

When I first interviewed Garzarelli a decade ago, she made a point of finding out when the column would appear, telling me her mother liked to follow her clippings. Her greatest goal was for the investment community to accept her emphasis on valuations, monetary policy and the economic cycle.

This time around, she maintained that she doesn't let news reports bother her, saying, "I think positively." Yet she later left several phone messages to make sure some "joking" comments she made weren't included in this column.

Garzarelli told me only two items have really hurt her feelings:

* An article in a national women's magazine extolling the some what flamboyant analyst's forecasts contained a comment from a woman at a competitor firm who said, as Garzarelli recalls, that "I looked like a whore.

"That's personal, but if they trash my work they'll receive a lawsuit," said Garzarelli, who was wearing a conservative black blouse and black slacks the day of this interview.

* One early article said the theoretical models she used for her forecasts were not her own. "That one broke my heart, because I take my work very seriously and it has always been my own work," she said.

Her high profile is inescapable. Half Garzarelli's time is spent on speaking engagements, and she will depart soon on a tour of Japan, Hong Kong, Singapore, Australia, Paris and London. Two years ago she was criticized for appearing in a No Nonsense pantyhose commercial (proceeds went to a Drexel University women's economics scholarship).

Garzarelli is outspoken in a field in which most women act conservatively because they realize Wall Street remains a male bastion. As long as she continues to excel, she can continue to be any way she wants. It's just that life is much different for a star, even on Wall Street.